Overview

South Africa has a large energy-intensive coal mining industry. The country has limited proved reserves of oil and natural gas and uses its large coal deposits to meet most of its energy needs, particularly in the electricity sector. South Africa also has a sophisticated synthetic fuels industry, producing gasoline and diesel fuels from the Secunda coal-to-liquids (CTL) and Mossel Bay gas-to-liquids (GTL) plants.

South Africa's energy sector is critical to its economy, as the country relies heavily on its large-scale, energy-intensive coal mining industry. South Africa has limited proved reserves of oil and natural gas and uses its large coal deposits to meet most of its energy needs, particularly in the electricity sector. Most of the oil consumed in the country, used mainly in the transportation sector, is imported from Middle East and West African producers in the Organization of the Petroleum Exporting Countries (OPEC) and is locally refined. South Africa also has a sophisticated synthetic fuels industry, producing gasoline and diesel fuels from the Secunda coal-to-liquids (CTL) and Mossel Bay gas-to-liquids (GTL) plants. The synthetic fuels industry accounts for nearly all of the country's domestically produced petroleum as crude oil production is very small.

South Africa's economy has grown rapidly since the end of the apartheid era in 1994, and the country is now one of the most developed nations in Africa. South Africa has the largest economy in Africa, in terms of gross domestic product (GDP), and has the highest energy consumption on the continent, accounting for about 30% of total primary energy consumption in Africa in 2012, according to BP Statistical Review of World Energy 2013. Despite this rapid growth, economic problems from the apartheid era remain, particularly poverty and the lack of economic participation among disadvantaged groups. The South African government has committed to ensuring that black-owned companies have access to the energy sector under its Black Economic Empowerment (BEE) program. Additionally, the 2000 Petroleum and Liquid Fuels Charter sets a target to place 25% of the oil industry (across all facets) in the hands of black-controlled energy companies.

According to a recent study by the U.S. Energy Information Administration (EIA), South Africa holds notable shale gas resources. In April 2011, the government enacted a moratorium on licensing and exploration of shale resources because of environmental concerns over hydraulic fracturing (fracking) and water usage. In September 2012, the government lifted the moratorium, and some international companies, such as Royal Dutch Shell, submitted applications to explore the shale region. The South African government hopes that shale gas will provide the country with a reliable alternative fuel to coal. South Africa is in the early stages of developing a shale industry, and regulatory uncertainty and environmental concerns continue to delay exploration activity.

In 2012, 72% of South Africa's total primary energy consumption came from coal, followed by oil (22%), natural gas (3%), nuclear (3%), and renewables (less than 1%, primarily from hydropower), according to BP Statistical Review of Energy 2013. South Africa's dependence on coal has led the country to become the leading carbon dioxide emitter in Africa and the 14th largest in the world, according to the latest (2011) EIA estimates.

Source: U.S. Department of State

Energy sector management

PetroSA, a South African state-owned company, operates upstream oil and natural gas producing assets in South Africa, along with the GTL plant in Mossel Bay. Sasol, a privately-owned company based in South Africa, operates the Secunda CTL plant, has a majority interest in the Natref oil refinery, partially owns the pipeline transporting natural gas from Mozambique to South Africa, and is involved in coal mining.

Regulatory organizations

South Africa has several government agencies and companies involved in the coal, natural gas, and oil sectors. The Petroleum Agency of South Africa (PASA) regulates oil and natural gas exploration and production and provides public data on exploration and production. The National Energy Regulator of South Africa (NERSA) regulates the electricity sector, natural pipeline industries, and petroleum pipeline industries. NERSA regulates electricity prices and promotes private sector participation by encouraging investment by independent power producers (IPPs), and off-grid technologies to meet rural energy needs. Eskom–the wholly state-owned electricity company–generates roughly 95% of South Africa's electricity and owns and operates the national electricity grid.

Major companies

South Africa's upstream oil and natural gas sectors are dominated by the state-owned company Petroleum Oil and Gas Corporation of South Africa (PetroSA), while the downstream oil sector is more diversified and includes companies from Europe, North America, and Asia. BP, Shell, Chevron, Total, and Engen are the main players in the downstream oil and petrochemical industry. PetroSA operates all upstream oil and natural gas producing assets in South Africa, along with the GTL plant at Mossel Bay. The company also participates in oil and gas activities in Ghana, the Democratic Republic of Congo (DRC), Egypt, Nigeria, Gabon, Equatorial Guinea, and Namibia.

Sasol is another major player in South Africa's energy industry and operates Secunda, one of the world's largest coal-based synthetic fuels plant. The company holds majority interest in the 88,000-barrels-per-day (bbl/d) Natref refinery. Sasol is also involved in coal mining and marketing of natural gas and oil products. According to Sasol's factsheet, the company mines 40 million tons (MMt) of saleable coal per year (mostly used at the Secunda CTL plant) and sells about 2.8 MMt per year. Sasol distributes and markets natural gas produced in Mozambique, which is exported to South Africa via a pipeline partially owned by Sasol.

Sasol has operations around the world, ranging from supplying petrochemicals to using its proprietary Fischer-Tropsch conversion technology to pursue opportunities to open GTL plants. Sasol has a 49% stake in Qatar's Oryx GTL plant (Qatar Petroleum owns 51%) that came online in 2007. The plant currently produces 30,000 bbl/d of liquid fuels. Sasol also has GTL projects in Nigeria and Uzbekistan.

In late 2012, Sasol announced it would begin a front-end engineering and design (FEED) phase for a GTL plant at Lake Charles, Louisiana in the United States that would convert natural gas into 96,000 bbl/d of diesel and other liquid fuels. Sasol estimates that the project will cost between $11 billion and $14 billion. The FEED phase is expected to be completed in 2016. If the project is undertaken, Sasol expects phase one to become operational in 2019, followed by phase two in 2020.

Sasol also plans to expand its existing chemical operations in Louisiana with the development of an ethane cracker that will produce 1.5 MMt of ethylene and other downstream derivatives per year. Sasol estimates that the project will cost between $5 billion and $7 billion. The FEED phase is expected to be completed in late 2014, and the project is expected to become operational in 2017.

Sasol is evaluating plans to open a GTL plant in Alberta, Canada. The plant is expected to use 1 billion cubic feet per day (Bcf/d) of natural gas to support the plant's design capacity of 96,000 bbl/d of diesel, naphtha, and liquefied petroleum gas. Sasol is also involved in shale gas exploration in Canada. In 2011, Sasol acquired a 50% stake in Talisman Energy's natural gas assets in the Montney basin in British Columbia.

Other major companies that participate is South Africa's coal sector include Anglo American, BHP Billton, and Xstrata Coal. The South African-based, majority black-owned, coal company Exxaro also ranks among the top producers.

Coal mining in South Africa is mainly undertaken by privately-owned companies, and the shareholders of Richards Bay, the main coal port, are all private companies as well. The state-owned company Transnet controls the railways used to transport coal from the mines to the ports.

Coal

South Africa has the world's ninth-largest amount of recoverable coal reserves and holds 95% of Africa's total coal reserves. Environmental groups continue to target the industry for air, land, and water pollution. However, coal consumption in South Africa is expected to continue to increase as new coal-fired power stations are scheduled to come online in the next few years to meet rising demand for electricity.

According to the BP Statistical Review of World Energy 2013, South African proved coal reserves were estimated at 30.2 billion short tons by the end of 2012, accounting for 95% of total African coal reserves and almost 4% of total world reserves.

South Africa's economy is heavily dependent on coal, as it accounts for more than 70% of the country's total primary energy consumption. The electricity sector accounts for more than half of the coal consumed in South Africa, followed by Sasol's petrochemical industries, metallurgical industries, and domestic heating and cooking, according to an Eskom January 2013 factsheet.

South Africa's coal production and consumption levels remained relatively stable over the past decade. In 2012, the country produced an estimated 288 million short tons (MMst) and consumed 202 MMst of coal. Most of the coal produced comes from the Witbank, Highveld, and Ermelo coal fields, which are located in the eastern part of the country near Swaziland. According to a 2011 report written by Anton Eberhard at Stanford University, coal production in the Central Basin is expected to peak in the next decade, and increased exploration at the Waterberg coal field could result in more coal for the country's future, but South Africa's ability to increase coal production is subject to infrastructure and water constraints.

Environmental groups continue to target the coal industry for air, land, and water pollution through all of the industry's stages from extraction to end use. Nonetheless, coal use—especially by Eskom and Sasol—is expected to rise over the next few years. Eskom plans to expand coal-fired electricity capacity to meet growing demand. Eskom plans to expand capacity at the coal-fired power stations Grootvlei and Komati by 30 and 90 megawatts (MW), respectively, in 2014, and to bring online the coal-fired Medupi power station (4,764 MW) and the coal-fired Kusile plant (4,740 MW) in the next few years.

Coal-to-liquids (CTL)

South Africa produces synthetic fuels from low-grade coal and a small amount from natural gas. At the Sasol synfuels plant in Secunda, more than 37 MMst of coal each year are converted into liquid fuels and a range of chemical feedstock. The plant houses two factories with a total capacity of 160,000 bbl/d of oil equivalent. Sasol plans to expand Secunda's capacity by another 30,000 bbl/d and has proposed to build the 80,000-bbl/d Mafutha CTL plant. Any future increases in CTL synthetic fuels will be used to meet growing domestic demand for petroleum products. About 30% of South Africa's gasoline and diesel consumption is produced from coal, according to the World Coal Association.

Exports

South Africa exports roughly 25% of its coal production. The Richards Bay Coal Terminal, the country's main coal export terminal, is one of the world's largest. In 2013, the terminal received and exported more than 70 million tons of coal for the first time. India and China are the largest importers of South African coal.

The Richards Bay Coal Terminal (RBCT), located on the eastern coast of South Africa, is one of the world's largest coal export terminals. It began operation with a nameplate capacity of 12 million tons (MMt) per year in 1976, and has since gone through several capacity expansions, increasing the export terminal's nameplate capacity to its current level of 91 MMt per year. According to Eberhard's report, there are proposals to expand the RBCT in the future, but these plans are constrained by inadequate rail capacity needed to transport coal produced at inland coal fields to the RBCT.

Recently, progress has been made to expand RBCT's throughput volumes. In 2013, the RBCT received and exported more than 70 MMt (77.2 MMst) of coal for the first time. According to RBCT operating statistics, the terminal received 70.8 MMt (78 MMst) of coal and shipped 70.2 MMt (77.4 MMst) of coal in 2013. Nonetheless, the terminal operates below its nameplate capacity of 91 MMt per year. South Africa's coal exports are mostly sent to India, China, and Europe.

Richards Bay Coal Terminal Operating Statistics, 2011-13

million tons

Year

Coal received

Coal shipped

2011

65.7

65.5

2012

68.5

68.3

2013

70.8

70.2

Source: Richards Bay Coal Terminal Proprietry Limited

Natural gas

South Africa imports natural gas from Mozambique via pipeline to supply Sasol's Secunda CTL plant and to fuel some gas-fired power plants. South Africa produces a small volume of natural gas offshore, and it is mainly used to supply the Mossel Bay GTL plant.

In 2012, South Africa produced 39 Bcf of natural gas and consumed 166 Bcf; the difference of 127 Bcf was imported from Mozambique via pipeline.

PetroSA is developing the F-O field, also known as Project Ikhwezi, to sustain gas supplies to the GTL facility. The company expects gas production to last for six years at the F-O field, but it plans to tap into nearby prospective areas to continue gas flows to the GTL plant. PetroSA is also planning to develop the Ibhubesi gas field and expects first production in 2016. The government hopes that new gas production from the F-O and Ibhubesi fields and regional imports from Mozambique, coupled with potential gas imports from Namibia in the future, will reduce the country's reliance on coal in the electricity and industrial sector. Currently, infrastructure constraints limit the role of natural gas in the country's electricity sector. PetroSA is considering building a floating regasification facility to supply the GTL plant in the future.

Shale gas resources

EIA estimates that South Africa holds 390 trillion cubic feet (Tcf) of technically recoverable shale gas resources. Environmental concerns led the government to place a moratorium on shale gas exploration from April 2011 to September 2012. In October 2013, the government released proposed new regulations to govern the exploration of shale resources. International companies are still waiting to be issued permit licenses for shale exploration.

According to a June 2013 report released by EIA, South Africa has 390 Tcf of technically recoverable shale gas resources, making the country the eighth-largest holder of technically recoverable shale gas resources in the world. Technically recoverable resources represent the volumes of oil and natural gas that could be produced with current technology, regardless of oil and natural gas prices and production costs, according to the report.

South Africa's shale gas resources are located in the Karoo basin in the Whitehill (211 Tcf), Prince Albert (96 Tcf), and Collingham (82 Tcf) formations. EIA lowered its estimate from 485 Tcf to 390 Tcf in the most recent report because the prospective area for the three shale formations in the Karoo basin was reduced by 15%. The Whitehill Shale's recovery rate and resource estimate were also reduced because of the geologic complexity, according to the report.

Environmental concerns regarding water usage and hydraulic fracturing (fracking), one of the processes used to facilitate the extraction of shale gas, led the government to enact a moratorium in April 2011 on permitting new exploration licenses for shale gas exploration. The moratorium was lifted in September 2012 after a government-funded study recommended that it was safe to continue shale gas exploration. In October 2013, South Africa's cabinet proposed new technical regulations to govern petroleum exploration, particularly standards for shale gas exploration and hydraulic fracturing.

The Petroleum Agency South Africa (PASA) has issued companies technical cooperation permits (TCPs) in the past, which authorize research into shale gas potential. However, companies are awaiting approval to convert their TCPs to exploration licenses, according to the Oil & Gas Journal (OGJ). Shell has three pending exploration license applications and Falcon Oil and Gas Ltd. and Bundu Gas & Oil have one each. The OGJ reported that Shell plans to spend $200 million to drill six wells in the first stage of exploration pending government approvals. Chevron also signed a five-year joint venture with Falcon Oil and Gas Ltd. in December 2012 to explore the area covered in Falcon's TCP located in the southern Karoo Basin. To mitigate concerns over water usage, the government requires that shale gas developers must obtain permits for sourcing and discharging water from the Department of Water Affairs, according to the OGJ.

Gas-to-liquids (GTL)

The GTL plant at Mossel Bay was commissioned in 1992 and is one of the largest in the world. PetroSA operates the plant, in addition to the offshore gas fields that provide the fuel. The refinery has the capacity to process 45,000 bbl/d of liquid fuels through a Fischer-Tropsch Process in which natural gas is converted to synthetic liquid fuels. The plant produces several synthetic liquid fuels, of which more than half is unleaded petrol (motor gasoline) and the remainder includes: kerosene (paraffin), diesel, propane, liquid oxygen and nitrogen, distillates, eco-fuels, process oils, and alcohols.

Natural gas pipelines

Natural gas from Mozambique is imported through the 535-mile Sasol Petroleum International Gas pipeline and transported to Sasol's Secunda synfuels plant. Sasol, the South African government, and the government of Mozambique own the pipeline through a joint venture. The pipeline has a peak capacity of 524 million cubic feet per day of natural gas and was part of a $1.2-billion natural gas project started in 2004. It is designed eventually to be able to transport double its current capacity.

Sasol and Shell have proposed to build a second regional pipeline, connecting Namibia's offshore Kudu natural gas field to both PetroSA's Mossel Bay GTL plant and continuing on to PetroSA's proposed oil refinery in Coega to feed a power station. However, plans to construct the pipeline have been halted mostly because of investment challenges to developing the Kudu natural gas field.

Petroleum and other liquids

South Africa has small amounts of proved crude oil reserves, and the country's crude oil production is very small. Synthetic fuels, derived from coal and natural gas, account for almost 90% of the country's domestic petroleum production.

According to the OGJ, South Africa has proved crude oil reserves of 15 million barrels as of the end of 2013. All of the proved reserves are located offshore southern South Africa in the Bredasdorp Basin and off the west coast of the country near the maritime border with Namibia. South Africa's petroleum and other liquids (total oil) production was around 180,000 bbl/d in 2013. However, synthetic fuels, derived from coal and natural gas, accounted for 160,000 bbl/d, or almost 90% of the country's domestic petroleum supply. Crude oil and lease condensate, natural gas plant liquids, and refinery processing gain made up to rest. Crude oil and lease condensate is produced at the Oribi and Oryz fields operated by PetroSA. The country's crude oil and lease condensate production continues to decline as oil fields mature in the absence of commercially viable discoveries.

South Africa's offshore Orange Basin near Namibia is believed to hold substantial oil and gas resources, although there has been limited exploration activity in the area. In 2009, Shell acquired exploration rights over a large block in the basin. However, Shell's exploration activities are still in the early stages, and the company is years away from potentially exploiting any commercial reserves.

Downstream

South Africa consumes the second-largest amount of petroleum in Africa, behind Egypt. The petroleum consumed in South Africa comes mostly from its domestic refineries that import crude oil and its CTL and GTL plants. South Africa imports crude oil mostly from OPEC countries in the Middle East and West Africa, with roughly half imported from Saudi Arabia in 2013.

EIA estimates that South Africa's total oil consumption was 616,000 bbl/d in 2013. The petroleum consumed in South Africa comes mostly from its domestic refineries that import crude oil and its CTL and GTL plants. The country also imports petroleum products. In 2012, South Africa imported 110,000 bbl/d of petroleum products, according to the South African Revenue Service as published by Global Trade Atlas (GTA).

Refining

South Africa has the second-largest crude oil distillation capacity in Africa at 485,000 bbl/d, surpassed only by Egypt (726,250 bbl/d), according to the OGJ January 2014 estimates. The government is planning to implement new, tighter fuel standards by 2017 that would require upgrades at all refineries. However, because of low returns on investment, refinery operators are hesitant to upgrade their facilities. Furthermore, tariffs on refined product pipelines recently increased, as the government needed the additional funds to finance the construction costs for a new multi-fuel pipeline between Durban and Johannesburg, which will replace the existing aging infrastructure and increase pipeline capacity. The new fuel standards, coupled with the increase in pipeline tariffs, may raise refiners' operational costs.

PetroSA has been advocating for the construction of a new 400,000 bbl/d refinery at Coega near Port Elizabeth, known as Project Mthombo (also known as the Coega plant). If the refinery is built, the refinery would be made to meet the new fuel standards. According to PetroSA, the refinery could meet a shortfall in locally refined diesel and gasoline by 2020 that may occur if there is no significant investment in domestic refinery capacity. PetroSA and Sinopec are jointly funding a study for the construction of the refinery, but no official decision to undertake the venture has been made.

Crude oil imports

In 2012, South Africa imported 378,000 bbl/d of crude oil, according to South African Revenue Service, as published by GTA. Preliminary estimates from January to November 2013 show that South Africa's crude oil imports averaged 370,000 bbl/d. South Africa imports crude oil mostly from OPEC countries. From January to November 2013, half of South Africa's crude oil imports were from Saudi Arabia, followed by Nigeria (24%), Angola (14%), Ghana (5%), and small volumes from various producers (7%).

Recently, South Africa's top oil supplier shifted from Iran to Saudi Arabia. In 2011, Iran was South Africa's largest crude oil supplier, accounting for about 27% of South Africa's total crude oil imports. But in 2012, South Africa's crude imports from Iran dropped because of U.S. and European Union (EU) sanctions against Iran. U.S. sanctions, directed toward foreign financial institutions that facilitate oil-related transactions with the Central Bank of Iran, entered into full force in July 2012. To avoid the sanctions, Iranian crude importers had to show or pledge significant reductions in their Iranian crude oil purchases to receive a 180-day renewable exemption. South Africa halted Iranian crude oil imports before the July 2012 deadline and was granted exemptions. South Africa did not resume imports from Iran in 2013, and continues to substitute Iranian imports with supplies from Saudi Arabia, Nigeria, and Angola.

South African Crude Oil Refinery Capacity, end 2013

Refinery

Company

Location

Capacity (bbl/d)

Sapref

Shell and BP PLC Petroleum

Durban

169,000

Enref

Engen Petroleum

Durban

118,000

Chevref

Caltex Oil SA (Chevron)

Cape Town

110,000

Natref

National Petroleum Refiners

Sasolburg

88,000

Total

485,000

Source: Oil & Gas Journal, January 2014

Electricity

South Africa's electricity system is constrained as the margin between peak demand and available electricity supply is very small. In November 2013, Eskom requested that its largest industrial customers cut their electricity consumption by 10% during peak demand times.

South Africa's nominal (nameplate) installed electricity capacity is about 45,700 megawatts (MW), although total net maximum capacity (nominal capacity minus the amount the power station uses to operate) is lower. According to South Africa's Department of Energy (DOE), Eskom supplies roughly 95% of South Africa's electricity and the remainder comes from independent power producers (IPPs) and imports. Eskom buys and sells electricity with countries in the region. South Africa is a member of the Southern African Power Pool (SAPP), which began in 1996 as the first formal international power pool in Africa with a mission to provide reliable and economical electricity supply to consumers in SAPP member countries.

South Africa plans to diversify its electricity generation mix. Currently, about 90% of South Africa's generation capacity is from coal-fired power stations, about 5% from one nuclear power plant, and 5% from hydroelectric plants, with a small amount from a wind station, according to South Africa's DOE. South Africa's renewable energy industry is small, but the country plans to expand renewable electricity capacity to 18,200 MW by 2030. South Africa has one nuclear power plant, Koeberg, with installed capacity of 1,940 MW. The country plans to expand nuclear power generation by 9,600 MW by 2030.

South Africa's electricity system is constrained as the margin between peak demand and available electricity supply has been precariously narrow since 2008, according to the Economist. In 2008, some coal mines had to halt operations because of power blackouts. In November 2013, Eskom requested that its largest industrial customers cut their consumption by 10% during peak demand times to avoid unexpected blackouts or load-shedding (scheduled power cuts). According to SAPP's 2013 Annual Report, South Africa's peak demand was forecast to reach 44,005 MW in 2013, exceptionally close to installed net maximum capacity. The SAPP forecast has peak demand growing to almost 53,900 MW (or by 20%) by 2025. According to Bloomberg, Eskom plans to spend $49 billion to replace aging equipment and add new power stations to meet growing demand.